NETHERLANDS Law and Practice Contributed by: Eduard Scheenstra, Etiënne Courbois and Jenny Noordermeer, CMS
5.5 Other Restrictions A Dutch company with 50 or more employees must establish a works council. If the company plans to grant security or guarantees for another entity’s sig- nificant debt, the works council must be consulted. For important board resolutions, the works council is entitled to give advice before the decision is adopted. If the board proceeds against the council’s advice, implementation must be suspended for one month, during which the council may appeal to the Nether- lands Enterprise Court. Additionally, depending on the company’s articles of association, granting security or guarantees may require prior approval from the gen- eral meeting of shareholders and/or the supervisory board. Dutch law also provides for the nullification of fraudu- lent transfers, both inside and outside bankruptcy. If a voluntary act harms creditors and the company (and, in some cases, the counterparty) knew this, the act can be voided. In bankruptcy, the trustee must prove the fraudulent nature, relying on statutory presump- tions. 5.6 Release of Typical Forms of Security A Dutch law security right terminates by operation of law if all secured liabilities are satisfied or discharged in full. A Dutch law security right can also be terminated by means of a waiver ( afstand ) by the security beneficiary, in the understanding that the same formalities apply to such waiver as to the creation of the relevant security right (meaning that for a waiver of a right of pledge over shares, a notarial deed is required). If the relevant security deed includes such right, a Dutch law security right can also be terminated by means of cancellation ( opzegging ). 5.7 Rules Governing the Priority of Competing Security Interests The priority of security interests depends on the time the relevant security interest is created. However, secured creditors may agree on the appli- cation of enforcement proceeds among themselves. Such agreements are usually contained in the inter-
creditor agreement, requiring the security agent to enforce the transaction security and distribute the enforcement proceeds to the various secured credi- tors by their ranking. Usually, senior and junior lenders share a single secu- rity package, and junior claims are subordinated on a contractual basis. Although subordination agreements are enforceable in the case of insolvency of the debtor, “subordination” does not have a defined meaning under Dutch law. A subordination agreement will be interpreted follow- ing the intentions of the parties, and its meaning is primarily determined by referring to the terms of the agreement. 5.8 Priming Liens Under Dutch law, the most material security interests that arise by operation of law and can prime a lender’s security interest are statutory preferential rights ( voor- recht ) and retention of title ( eigendomsvoorbehoud ). Statutory preferential rights include, for example, the tax authorities’ right of priority for unpaid taxes and employees’ rights for unpaid wages. These preferen- tial rights can rank ahead of a lender’s security inter- est, particularly in insolvency scenarios. To structure around these preferential rights, lenders could: • require borrowers to provide evidence of tax and wage payments; • use blocked accounts to control cash flows; and • include covenants in loan agreements to ensure ongoing compliance with statutory obligations. Right of retention is a right of a creditor who has possession of a debtor’s asset and can retain it until payment of a claim relating to that asset is made. For example, a repairer of machinery may retain the machinery until it is paid for the repairs. To structure around retention of title under Dutch law, lenders could take, among other things, the following measures:
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